Wanted: Investors for debt-saddled Hanjin shipbuilder

The hunt is on for a new investor in shipbuilder Hanjin Heavy Industries & Construction-Philippines, Inc. (HHIC-PHL), the local affiliate of South Korean-based Hanjin Heavy Industries and Construction Holdings Co., Ltd. (HHICH), which recently filed for rehabilitation due to financial distress.

HHIC-PHL owes Philippine banks US$412 million in outstanding loans, on top of another $900 million in debts with lenders in South Korea.

In a statement, Subic Bay Metropolitan Authority (SBMA) SBMA chair and administrator Atty. Wilma Eisma said she hopes “Hanjin’s creditors would agree to some rehabilitation plan, or that the company would find some financial partner to continue with its shipbuilding operations in Subic.”

Two Chinese shipbuilding firms are supposedly interested in taking over the Hanjin Philippine operation, according to Board of Investments managing head Ceferino Rodolfo.

Eisma said she was informed that the company still has six pending multi-million new building projects at its Subic shipyard that may have to be cancelled if a rehabilitation plan does not materialize.

“It’s really sad that Hanjin would be in dire financial straits after successfully building some of the world’s biggest ships here and putting the Philippines in the map as the world’s fifth largest shipbuilder,” Eisma said.

HHIC-PHL on January 8 filed a petition at the Regional Trial Court in Olongapo City to initiate voluntary rehabilitation under Republic Act No. 10142, or An Act Providing for the Rehabilitation or Liquidation of Financially Distressed Enterprises and Individuals.

According to reports, HHIC-PHL had taken out loans from Banco De Oro Universal Bank, Bank of the Philippine Islands, Land Bank of the Philippines, Metropolitan Bank and Trust Co., and Rizal Commercial Banking Corp.

Mother company HHICH on January 8 also filed with the Korea Exchange an “application for rehabilitation, bankruptcy, etc. of principal debtor (guarantee) corporation,” to “promote management normalization by applying for regeneration procedure.”

It said the Subic shipyard’s assets have been valued at KRW1.84 trillion (about P84 billion) as of the end of 2017, accounting for 43.75% of HHICH’s consolidated assets.

Korean newspapers said HHICH and its affiliate have been suffering from a drop in new orders amid the protracted slump in the global shipbuilding sector. HHICH has also been conducting massive restructuring efforts since 2016 by selling non-core assets.

HHIC-PHL is Subic Bay Freeport’s biggest locator, with a 300-hectare shipyard and an infusion of $2.3 billion in direct investment, and employing about 30,000 workers at the peak of its operations.

Until very recently, it had 23,000 workers, according to some reports. The company has laid off tens of thousands of workers in the runup to the filing of the bankruptcy. Last December, it issued pink slips to more than 7,000 workers, Eisma said.

The company is set to lay off another 3,000 early this year, until only about 300 local workers and seven Korean supervisors will remain by March 2019 to conduct facility maintenance.

Since 2008, the facility has built 123 vessels, according to its website. HHIC-PHL’s presence and production in the country contributed to the Philippines’ status as one of the top shipbuilding countries worldwide.

Bangko Sentral ng Pilipinas (BSP) deputy governor Chuchi Fonacier in a television interview on January 11 said the central bank is monitoring the issue and that “there’s no cause for worry.”

In a separate statement, BSP officer-in-charge Diwa Guinigundo assured that the combined exposure of local banks to HHIC-PHL is “very negligible” based on the central bank’s “initial assessment” relative to total loans of the banking system and total foreign currency deposit unit loans.

“Our banks as a whole are very strong and more than adequately capitalized, their assets continue to grow and the quality of their loans based on non-performing loan ratio is less than 2%,” Guinigundo added.

Banks involved said they have agreed to take control of the company in the meantime, noting that not one would seize collateral before the other creditors.